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Agriculture Minister Lawrence MacAulay announced two programs worth $350 million for Canada's dairy sector Thursday, as his Liberal government tries to help farmers and processors adjust to new competition from foreign cheese imports under the Canada-EU trade deal.

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CETA deal signed last month will allow imports worth 4% of Canadian cheese market

Agriculture Minister Lawrence MacAulay, right, seen here with his parliamentary secretary Jean-Claude Poissant in front of the dairy herd at the Canadian Agriculture Museum in Ottawa Thursday, announced $350 million for two new funds to help dairy farmers and processors improve their international competitiveness. (CBC News)

Agriculture Minister Lawrence MacAulay announced two programs worth $350 million for Canada's dairy sector Thursday, as his Liberal government tries to help farmers and processors adjust to new competition from foreign cheese imports under the Canada-EU trade deal.

The Comprehensive Economic and Trade Agreement (CETA) may come into force provisionally next year. Today's new funding is meant to be in place before new European cheeses displace up to four per cent of the Canada's cheese market.

"What we heard from dairy farmers, and in particular young dairy farmers from across the country, what they want is a supply management system in this country that's secure for generations," the minister said. "That's what this program does."

The Liberal government pledged transition assistance to help both farmers and processors adjust to the new foreign competition: CETA doubles the current level of European imports. That translates into a roughly two per cent reduction in the amount of milk required from Canadian farms.

One $250 million program will help farmers update their technology and equipment to boost productivity. The minister suggested robotic milking equipment, automated feeding systems or new herd management software as examples of what might qualify.

A separate $100 million fund for dairy processors would be available to help modernize their operations or diversify product lines for new markets. Under CETA, Canadian dairy products will have tariff-free access to the large European consumer market.

The package does not, however, include lump sum compensation for the industry in anticipation of lost income.

Canada's supply management system restricts how much milk each farmer can produce using a quota system that's set according to the size of the domestic market. Stable prices are set for farmers to correspond with their estimated production costs.

As new imports arrive under this trade deal, the marketing board regime will have to adjust its supply and pricing calculations.

Disagreement on possible losses

MacAulay said Thursday that the new assistance package was designed based on what the government heard from the dairy sector during consultations in recent months. He said the government plans to keep talking to farmers and processors over the next few weeks as it finalizes how the programs will work, including additional online consultations.

"This is what they have asked for," he said. "What dairy farmers want in this country is to be able to innovate and make sure that they are on the cutting edge as far as farming is concerned worldwide, to make more product, cheaper."

Because the domestic cheese market is growing, the government isn't certain the sector would necessarily suffer losses, but that future growth in the market may be lost to the new imports, particularly European specialty cheeses.

The Dairy Farmers of Canada disagree. They've calculated a potential $116 million in estimated perpetual lost revenue.

"That's a good question," said Ralph Dietrich, the chair of the Dairy Farmers of Ontario, when asked if Thursday's announcement would be enough for his members. "Obviously some would want more and some are going to be pleased and happy with the amount that it is. We've worked with the government and this is the amount that it is."

"We'll take one step at a time," he said, calling Thursday's technology upgrade fund announcement vital. "As you get left behind by the rest of the world...you really don't have any chance of being competitive."

"There's a lot of farms that need updating," he said.

Ralph Dietrich, the chair of the Dairy Farmers of Ontario, said that some of his members will be happy with the funds announced by the federal government, while others think more help is needed. (CBC News)

The Dairy Processors Association of Canada estimates CETA could result in annual losses of over $230 million for cheese processors in particular, contributing to a $719 million loss for the overall economy. That may translate into up to 2,900 job losses, it said.

The new fund is "a way to mitigate those negative impacts that we are facing," said Jacques Lefebvre, the president and CEO.

The processors want the quota for new cheeses entering Canada tariff-free under CETA to be assigned to existing processors as the Canada-based importers. But a requirement written into the deal specifies that 30 per cent of the quota must be allocated to new entrants.

The government has not yet announced who will be importing what kinds of tariff-free cheese under CETA, but a decision is expected soon following several months of consultations.

U.S. trade concerns remain

That compensation package was meant to help the entire supply management sector — dairy, poultry and eggs — in the face of both the EU trade deal as well as the Trans-Pacific Partnership agreement.

Ratification of the TPP is now in doubt, in large part because Donald Trump, the new U.S. president-elect, has said he doesn't support it.

MacAulay said his government continues to work on other issues facing the supply management sector, including the issue of low-cost diafiltered milk products skirting import rules and entering Canada from the U.S. outside of the restrictions that normally control what ingredients are available to food manufacturers.

Jacques Lefebvre, the CEO of the Dairy Processors Association of Canada, said an agreement in principle between farmers and processors has been reached to help modernize the industry. (CBC News)

Lefebvre said that if a processor wanted to build a drying facility to process diafiltered milk (powdered milk protein concentrates) in Canada instead of using U.S. imports, the cost of that alone could be $100 million — basically the size of the entire new fund.

He said processors and farmers have been working together on a plan to make the industry more competitive and that an agreement in principle has been reached, but he declined to reveal details.

The minister said it's too early to jump to conclusions as to what the election of Donald Trump might mean for the agriculture sector, dismissing hypothetical questions about what might happen if the North American Free Trade Agreement is re-opened.

"I inherited enough problems in the supply management sector to deal with that are right here, without looking for problems that haven't arrived yet," MacAulay said.